Oil futures traded lower early Friday, but the market is still on track to end the week with gains. Investors are carefully considering the outlook for interest rate cuts by the Federal Reserve, as well as geopolitical tensions in the Middle East and uncertainties surrounding crude demand.
Price Action
- West Texas Intermediate crude for March delivery fell 46 cents, or 0.6%, to $77.57 a barrel on the New York Mercantile Exchange.
- April Brent crude, the global benchmark, was down 67 cents, or 0.8%, at $82.19 a barrel on ICE Futures Europe.
Market Drivers
Barbara Lambrecht, a commodity strategist at Commerzbank, believes that while the geopolitical situation remains tense, concerns about crude demand have resurfaced. Lambrecht cites premature hopes of rapid interest rate cuts in the U.S. as one of the reasons behind these concerns.
The expectation for an early rate cut in March was dampened by a higher-than-expected January consumer-price index reading. This reading caused the stock market to slide and Treasury yields to rise. However, equities managed to recover most of their losses and yields stabilized thanks to a soft January retail sales report that eased worries about a resurgence in inflation.
According to analysts at Sevens Report Research, the recent resilience in the market can be attributed to concerns about future economic growth. The bad retail sales data was seen as positive due to its implications for monetary policy globally.
As long as geopolitical tensions remain elevated in the Middle East and Eastern Europe, and there is no significant drop in demand, any news, data, or headlines that support a less hawkish policy stance will likely boost oil prices and potentially push them beyond $80 per barrel to reach new highs by 2024.
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